Software vs. Services: Is the Line Disappearing?

While reading about IBM’s software strategy today in The New York Times, I noticed the following line: “The line between software and services is increasingly blurred, and IBM has many thousands of developers these days in its big services group.” I began to wonder: Is the situation similar within managed services providers? Should it be?

I realize thousands of VARs continue to work on traditional network, storage and application projects. And thousands of MSPs successfully generate recurring revenue based on pro-active customer services. But from where I sit, the next waves in IT seem to require deeper application expertise.

Consider the rise of the Google Apps Marketplace. As a Google Apps reseller, MSPs and VARs can only make about $10 per user per year. But if you develop some application-specific expertise, tied to the Google Apps marketplace, you can likely generate healthy software project revenue. And you may even develop some intellectual property that you can market on your own.

In a way we’re going back to the future. In the 1990s, I suspect the most profitable Microsoft partners had some deep application expertise tied to Exchange Server and/or SQL Server. Fast forward to the present day, and channel partners are shifting their application expertise from traditional servers to cloud and SaaS integration expertise. Such is the case at JoomConnect and MSPintegrations, two separate business efforts from MSPs that are now writing managed services middleware.

When I think of MSPmentor’s own business, we aren’t really interested in paying someone to proactively monitor our PCs. But we still pay a premium to integrators and consultants that can build online applications that link together multiple cloud systems and open source code.

Bottom line: People will pay a premium for innovation that delivers a competitive edge. And I suspect the most profitable MSPs of 2010 and beyond will have some specialized software or application customization expertise in their toolkit.

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